EDITORIAL COMMENT:Price hikes: Government, business should reach common ground

THE latest wave of price hikes encompassing basic commodities such as mealie meal and bread should be rescinded while Government and business try to reach common ground over the contentious issue.

Government has said it is amenable to market forces determining prices but business has been wantonly increasing prices of goods without regards for the basic principles of economics to the detriment of consumers. There have also been accusations and counter accusations between manufacturers and retailers as to who is actually seeking to profiteer through price hikes.

This week, the price of bread shot up from $2 to $3,50 for a standard loaf while a 10kg bag of mealie meal went up to $11,85 from the recommended retail price of $6,30. Last week, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya slammed businesses for wantonly raising prices of basic commodities based on the movement of the exchange rate, saying it was not a significant factor to determine the value of a product.

Dr Mangudya said businesses were exaggerating the effect of exchange rate in determining prices of goods and services. He said this while giving oral evidence before a Parliamentary Portfolio Committee on Information Communication Technology and Courier Services chaired by Kuwadzana East legislator, Mr Charlton Hwende (MDC-Alliance.)

“Let me remove the myth about exchange rate. Not all the cost of production come from foreign currency. Sometimes in a product, maybe the import component is 10 percent, or 15 or 20 percent. You cannot use an exchange rate for determining the price of a product every day.

“You do not need to track the exchange rate on a daily basis. If your cost of production is 20 percent foreign currency, I think it would be wrong to use exchange rate as a price determining factor, which I see in Zimbabwe,” said Dr Mangudya.

He said several other countries’ exchange rate would constantly move, but prices would remain static. “In South Africa, you hear that every day, the Rand has moved from 12 to 13, 14 or whatever to the US dollar, but they do not change the price because of movement of exchange rate. If you go to Zambia, the Kwacha moves from 9, 10, they do not change the price. We do not necessarily want this tracking mechanism.

“I think it is a disease that needs to be removed in this country. Yes, we know that Zimbabwe depends on foreign currency, but let us not overemphasise that dependency,” said Dr Mangudya. Despite his assertions, businesses this week increased prices of basic goods citing rising production costs. Their decision coincided with a sharp movement in the parallel market rate between the RTGS$ and the United States dollar. The rate is now hovering around US$1:RTGS$4,8.

While it is understandable that businesses want to hedge against losses by preserving their stock and protecting it from the unstable RTGS$, it is also prudent for them to make price adjustments that are humane and not extortionate as is the case at the moment.

As the RBZ Governor noted, their cost of production is not entirely dependent on access to foreign currency. Granted, for companies like Delta which manufacture beer and soft drinks, some consumables are procured outside the country but maize and hops are available locally meaning they need to strike a balance between the foreign currency component and raw materials which are readily found in the country. Bakers get their wheat/flour from the Grain Millers’ Association of Zimbabwe which is allocated foreign currency by the RBZ to import the product.

This week, GMAZ said millers had hiked prices of flour by 50 percent in line with new producer prices announced by Government. It therefore follows that the price of bread cannot, in all honesty, rise by a margin of more than 50 percent if all conditions remain the same.

What is disturbing about the latest price madness is that it affects other sectors of the economy. For instance, boarding schools have already started increasing fees for the second term citing escalating costs. Some private schools are demanding part of the fees in foreign currency. Such a scenario is untenable in a country which is not 100 percent dollarised.

Businesses should therefore realise that their actions have a knock on effect on the entire economy and negate efforts being made by Government to stabilise and grow the economy. Their profiteering tendencies raise inflation which might wipe out all the gains made through implementation of the Transitional Stabilisation Programme.

There is a danger that by continuously squeezing the consumer, they might end up with huge stocks of goods with no one to buy. We implore them to reconsider their latest price increases and heed Government calls for them to allow consultations to take place so that an amicable solution is found.

We are aware that they are in business to make profit but this should not be at the expense of long suffering consumers.